Music's Mixed Messages

For all that folks might wonder about the future of the music industry, one thing's for sure: Downloading digital music seems to be an idea whose time has come. Sales of music downloads -- driven, no doubt, by low price and convenience -- more than tripled in the first half of this year, to $790 million, the International Federation of the Phonographic Industry reported today.

This increase in legally downloaded music is good news for the industry, which has lamented an ongoing malaise in global music sales. Overall, music sales dipped by 1.9% to $13.2 billion worldwide in the first half of the year. As has been obvious for quite some time, popularity of the CD format has been flagging. Sales of physical format music dipped by 6.3% in value for the period.

Of course, one of the theories as to why piracy -- and legal digital sales -- have flourished has been that music fans tired of the high price of CDs. Digital music sales now make up 6% of the overall market for music. That may seem like a small percentage, but music fans and experts alike expect it to continue to increase at high rates.

The data indicates that the countries most responsible for the uptick in digital downloading of music include the United States, Britain, Japan, Germany, and France. (For an idea of how popular music downloading is in Japan, see this recent Foolish article.)

It's no secret that Apple (Nasdaq: AAPL  ) pioneered the idea that it's OK, even cool, to pay for digital music, using its iTunes program that was boosted by its runaway hit device, the iPod. Another trend that has been getting a lot of news coverage is the increasing popularity of musical ringtones for cell phones.

The rapidly growing market for digital music underlines why so many companies are eyeing Apple's success and hoping to get their piece of the market. It's not just companies like Napster (Nasdaq: NAPS  ) or RealNetworks (Nasdaq: RNWK  ) that want to lure music lovers, but also Internet giants like Yahoo! (Nasdaq: YHOO  ) , Microsoft (Nasdaq: MSFT  ) , and Time Warner's (NYSE: TWX  ) America Online. A few months back, I covered rumors that Amazon.com (Nasdaq: AMZN  ) might be eyeing the space as well.

It wasn't long ago that many people were uncertain as to whether people would pay for music downloads at all. Piracy on the peer-to-peer (P2P) illegal sites was rampant, but the music industry fought back by filing lawsuits against individuals who downloaded music from the free sites, calling defendants "John Doe" when Internet service providers refused to reveal the names of customers associated with specific IP addresses.

But now it's becoming clear that many fans will opt to buy their music legally online, given the right price and the optimal level of convenience. And, of course, given the trends at hand, there are many obvious questions that fit right into this theme.

Such as, how long will Apple remain the darling of digital downloading? Can a former renegade like Napster ever regain its former flair now that it's on the up and up? Will the record industry mess this up, given what some would argue is a tradition of alienating customers who haven't been too terribly sympathetic regarding the high price of music or the industry's plight against piracy? Will folks really want to listen to music on their cell phones, and ditch their iPods? As old-school CDs begin to gather dust, a musical revolution has begun. Many fans clearly like to download their music -- but the revolution's far from over.

For related Foolish coverage, see the following stories:

Time Warner and Amazon.com are bothMotley Fool Stock Advisorpicks. To find out what other stocks have been highlighted by David and Tom Gardner, please click herefor a 30-day free trial.

Alyce Lomax does not own shares of any of the companies mentioned, but she's got a rather bad iTunes habit.


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